Taking a three-lane road

Norway’s biggest oil company has ratcheted up its own climate ambitions by several turns. And the goal of lower emissions and more renewable energy remains unchanged despite oil price cuts and the coronavirus crisis.

Equinor presented an ambitious climate plan in February, setting targets for sharp emission reductions, rapid growth in renewable energy and a lower “carbon intensity”.

Almost immediately afterwards, the world was hit by the coronavirus onslaught and oil prices went into free fall. But the climate strategy’s goals are long-term and unchanged.

This assurance is provided by Bjørn Otto Sverdrup, senior vice president for sustainability at Equinor, despite the pandemic and lower revenues from the company’s existing core business.

“Today’s oil prices mean that everyone has a little less money than before to invest in new things,” he says. “But I don’t think we have any plans to put the future on hold and say ‘we’ll get back to this’. It doesn’t work like that here.”

Roadmap

Equinor has designated its current climate strategy a roadmap – the third in its history. Published in 2008, the first aimed to reduce and preferably avoid greenhouse gas (GHG) emissions from the company’s operations on the NCS.

This was succeeded by a second roadmap in 2017, which also introduced an emphasis on increasing Equinor’s output of renewable energy.

“Our latest version confirms and extends the first, reinforces the second and launches a new main element in our strategic thinking,” Sverdrup explains.

In his view, the revised roadmap shows that Equinor is now taking a fundamentally different approach to tackling the climate issue.

Near-zero

Getting emissions down is the first part of the strategy, with the actual amount of GHG released in Norway to be cut by 40 per cent in 2030 and 70 per cent in 2020, and to reach near-zero in 2050.

“That’s a very ambitious goal, which means that we’ll be lowering our emissions faster than the Norwegian government’s Climate Cure programme, for example,” says Sverdrup.

In addition to enhancing energy efficiency, these cuts will be pursued through extending the use of electricity to eliminate emissions from gas-fuelled turbines, compressors and generators.

Equinor is working to achieve this in the Utsira area of Norway’s southern North Sea and on fields which will be producing for many years to come – such as Oseberg and Troll. Many of these projects are due to be implemented by 2030.

Power from shore will also be adopted on the Halten Bank in the Norwegian Sea and at the Snøhvit gas liquefaction plant outside Hammerfest, but this probably has a longer time frame.

“Because oil and gas contribute up to 10 per cent of the world’s CO2 emissions, it’s incredibly important to produce them with the smallest possible climate footprint,” says Sverdrup.

Sustainability

This word is used in many different contexts today, but goes back to the final report of the UN’s World Commission on Environment and Development in 1987.

That defined sustainable development as “[meeting] the needs of the present without compromising the ability of future generations to meet their own needs”.

Renewable

Expansion in renewable energy is the second key element in Equinor’s climate strategy, with its output in this area due to reach 12-16 gigawatts over the next 10-15 years.

That compares with its current output of four-six GW from renewable sources, and represents an average annual increase of 30 per cent.

This will be achieved through the large-scale development of offshore wind power (OWP), and the company is already well under way here.

Its biggest investment so far is the Dogger Bank project in the UK North Sea, which will alone generate enough electricity to supply 4.5 million British households.

“That’s not only our biggest renewable development, but also our largest investment overall in the North Sea,” says Sverdrup. “It’s actually equal to phase I of the Johan Sverdrup field.”

He also calls attention to the Empire Wind scheme in the USA, where 60-80 wind turbines are planned to supply more than 500 000 New York homes from 2024.

In addition comes the Hywind Tampen project in the Norwegian North Sea, where 11 floating turbines will generate power for the Gullfaks and Snorre fields from 2022.

In charge

The safety of renewable energy generation on the NCS has been added to the PSA’s supervisory responsibilities.

Role

The new third element in this year’s roadmap update is the corporate goal of playing a role in the transition to a low-emission society.

“We want to change the composition of our products in order to reduce the climate footprint per unit of energy we deliver over time,” explains Sverdrup.

Put another way, Equinor aims to reduce its carbon intensity – which measures the emission of GHG per unit produced.

That will be achieved in practice with the aid of carbon capture and storage (CCS) and by producing hydrogen from natural gas.

The company will be helping to develop these new low-carbon industries, which Sverdrup believes will be important business areas within a few years.

“Our approach to climate is now fundamentally different,” he emphasises. “That’ll come to determine a lot of what we’re going to be doing in the time to come.

“We’re very concerned to work long-term, and try to be thorough and robust in everything we do. Overall, we believe today’s energy system is unsustainable and needs to change.”

Conversion in practice

Hi-tech equipment for the oil sector has been IKM Technology’s bread and butter. But the industry’s commitment to offshore wind power (OWP) is opening new markets for this company.

He adds that, while petroleum will be required for many years to come, it is very important to produce the right oil and gas with the lowest cost and GHG emissions.

Equinor is convinced that its new strategy can improve its competitiveness, Sverdrup says.

“While cutting GHG emissions was earlier viewed perhaps as a cost, we now see it as providing a competitive edge – and a way to make our business more robust.”

He explains that releasing CO2 may become more expensive in the future, and that government regulation could get tough. A commitment to renewables will help to spread risk and better protect the company from price and demand fluctuations.

Profitability

Both analysts and investors have questioned the profitability of Equinor’s new course. Sverdrup notes that a petroleum project typically had a return of 10-20 per cent or more before the pandemic and slumping oil prices.

That is very high compared with other sectors. The return on the company’s renewable energy portfolio is six-nine per cent, which it hopes to increase to 10-12 per cent.

“But when we talk about profitability, we need to look at both risk and return,” Sverdrup observes, and notes that the oil sector is exposed to big price fluctuations.

“It also involves much greater geological and safety risks –major accidents, for example. That’s another reason why renewable projects are interesting. They help to safeguard cash flow.

Harmonising commerce and climate

Demands for emission cuts mean that a number of oil companies are now making a commitment to renewable energy. But can offshore wind power (OWP) ever be as profitable as petroleum?

“We’ve never said that renewables can compete with super-profitable oil projects, but they’re a very significant part of our portfolio.”

He adds that some of the renewable projects “have very interesting profitability”. Moreover, Equinor is working to learn how it can reduce costs.

“Some renewable projects are actually more profitable than oil developments after the coronavirus. Changes have been very abrupt, which shows that modelling future profitability is difficult.

“In any event, it’s strategically important to be ahead of the energy transition. We and Norway’s oil industry have a competitive edge here, and a lead over the rest of the world.

“We’d dealt with our emissions on the NCS a decade before other people began to be concerned about cutting them. And it’s a long time since we began to transfer power from shore.”

Exploit

Sverdrup maintains that companies and the authorities should exploit this advantage to develop solutions which lead the way into a new energy future.

“That can by all means take the form of a public-private partnership, like Hywind Tampen and the Northern Lights CCS project.”

In his view, the fact that such developments need to receive government support does not present any obstacles to getting on with them.

“The oil industry has yielded several thousand billion kroner in revenues to society. We now have to stake out new paths and apply the knowledge we’ve acquired to building a new industry.”